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                Your CPA firm, Patrick &amp; Patrick LLC, has conducted the Year 4 audit of Aamani Inc., a nonissuer. Aamani Inc. is a toy manufacturer that has engaged your firm as their independent auditor.<br>
                <br>
                At the conclusion of the Year 4 audit, you, as the audit senior, are responsible for drafting the communication of significant audit findings to those charged with governance.<br>
                <br>
                Your audit staff has pulled a communication letter from another client and edited the letter with Aamani Inc.'s basic information. You will need to review this letter along with other relevant audit work papers and client communications in the Exhibits tab to complete the <em>Independent Auditor's Communication with Those Charged With Governance</em> prior to submitting the letter for your manager's review.<br>
                <br>
                To revise your firm's communication with those charged with governance, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct and does not need to be updated, select [Original text] from the list. If removal of the underlined text is the best revision, select [Delete] from the list.<br>
                &nbsp;
                <hr>
                <p>INDEPENDENT AUDITOR'S COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE</p>
                Board of Directors<br>
                Aamani Inc.<br>
                Shreveport, LA<br>
                &nbsp;<br>
                We have audited the financial statements of Aamani Inc. (the Company) for the year ended December 31, Year 4, and have issued our report thereon dated May 5, Year 5. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards. Professional standards also require that we communicate to you the following information related to our audit.<br>
                <br>
                <u>Our Responsibility Under U.S. Generally Accepted Auditing Standards</u><br>
                <br>
                <span class="parent mbg {if condition='isset($log.1)'}xbg{/if}">{if condition='isset($log.1) && $log.1.topic_v eq 2'}<s>{/if}As stated in our engagement letter dated October 16, Year 4, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with the standards of the American Institute of Certified Public Accountants.{if condition='isset($log.1) && $log.1.topic_v eq 2'}</s>{/if}</span>
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                                <input type="radio" name="topic_t[1]" value="1" {if condition='isset($log.1) && $log.1.topic_v eq 1'}checked{/if} title="<em>[Original text]</em> <em class='span'> As stated in our engagement letter dated October 16, Year 4, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with the standards of the American Institute of Certified Public Accountants.</em>" ><br/>
                                    <input type="radio" name="topic_t[1]" value="2" {if condition='isset($log.1) && $log.1.topic_v eq 2'}checked{/if} title="[Delete Text]"><br/>
                                    <input type="radio" name="topic_t[1]" value="3" {if condition='isset($log.1) && $log.1.topic_v eq 3'}checked{/if} title="<em class='span'>As stated in our engagement letter dated October 16, Year 4, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities.</em>" ><br/>
                                        <input type="radio" name="topic_t[1]" value="4" {if condition='isset($log.1) && $log.1.topic_v eq 4'}checked{/if} title="<em class='span'>As stated in our engagement letter dated October 16, Year 4, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles.</em>"><br/>
                                            <input type="radio" name="topic_t[1]" value="5" {if condition='isset($log.1) && $log.1.topic_v eq 5'}checked{/if} title="<em class='span'>As stated in our engagement letter dated October 16, Year 4, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with the standards of the American Institute of Certified Public Accountants. Our audit of the financial statements does not relieve you or management of your responsibilities.</em>" ><br/>
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                                                <br>
                                                Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement.<br>
                                                <br>
                                                We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you.<br>
                                                <br>
                                                <u>Planned Scope and Timing of the Audit</u><br>
                                                <br>
                                                An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, our audit will involve judgment about the number of transactions to be examined and the areas to be tested.<br>
                                                <br>
                                                Our audit will include obtaining an understanding of the entity and its environment, including internal control, sufficient to assess the risks of material misstatement of the financial statements and to design the nature, timing, and extent of further audit procedures. Material misstatements may result from (1) errors; (2) fraudulent financial reporting; (3) misappropriation of assets; or (4) violations of laws or governmental regulations that are attributable to the entity or to acts by management or employees acting on behalf of the entity. We performed the audit according to the planned scope and timing previously communicated to you in our meeting about planning matters on March 1, Year 5.<br>
                                                <br>
                                                <u>Significant Audit Findings</u><br>
                                                <br>
                                                <em>Qualitative Aspects of Accounting Practices</em><br>
                                                <br>
                                                Management is responsible for the selection and use of appropriate accounting policies. A summary of the significant accounting policies used by the Company is included in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended December 31, Year 4. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions; and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. No matters have come to our attention that would require us, under professional standards, to inform you about the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.<br>
                                                <br>
                                                Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive accounting estimates affecting the Company's financial statements were:<br>
                                                <br>
                                                <span class="parent mbg {if condition='isset($log.2)'}xbg{/if}">{if condition='isset($log.2) && $log.2.topic_v eq 2'}<s>{/if}Management's estimate of the insurance claims incurred but not reported, which is based on information provided by the entity's third-party administrators and subsequent claims activity.{if condition='isset($log.2) && $log.2.topic_v eq 2'}</s>{/if}</span>
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                                                                <input type="radio" name="topic_t[2]" value="1" {if condition='isset($log.2) && $log.2.topic_v eq 1'}checked{/if} title="<em>[Original text]</em> <em class='span'> Management's estimate of the insurance claims incurred but not reported, which is based on information provided by the entity's third-party administrators and subsequent claims activity.</em>" ><br/>
                                                                    <input type="radio" name="topic_t[2]" value="2" {if condition='isset($log.2) && $log.2.topic_v eq 2'}checked{/if} title="[Delete Text]"><br/>
                                                                    <input type="radio" name="topic_t[2]" value="3" {if condition='isset($log.2) && $log.2.topic_v eq 3'}checked{/if} title="<em class='span'>Management's estimate of gift card breakage, which is based on historical experience.</em>" ><br/>
                                                                        <input type="radio" name="topic_t[2]" value="4" {if condition='isset($log.2) && $log.2.topic_v eq 4'}checked{/if} title="<em class='span'>Management's estimate of the value of inventory, which is based on historical experience, including turnover and purchase forecasts. Management's estimate of merchandise returns and gift card breakage, which is based on the length of time it is believed that those assets will provide some economic benefit in the future.</em>"><br/>
                                                                            <input type="radio" name="topic_t[2]" value="5" {if condition='isset($log.2) && $log.2.topic_v eq 5'}checked{/if} title="<em class='span'>Management's estimate of the value of inventory, which is based on historical experience, including turnover and purchase forecasts. Management's estimate of merchandise returns and gift card breakage, which is based on historical experience. Management's estimate of the useful lives of depreciable capital assets, which is based on the length of time it is believed that those assets will provide some economic benefit in the future.</em>" ><br/>
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                                                                                We evaluated the key factors and assumptions used to develop these estimates and determined that they are reasonable in relation to the financial statements taken as a whole and in relation to the applicable units.<br>
                                                                                <br>
                                                                                <em>Significant Difficulties Encountered in Performing the Audit </em><br>
                                                                                <br>
                                                                                <span class="parent mbg {if condition='isset($log.3)'}xbg{/if}">{if condition='isset($log.3) && $log.3.topic_v eq 2'}<s>{/if}We encountered no difficulties in dealing with management in performing and completing our audit.{if condition='isset($log.3) && $log.3.topic_v eq 2'}</s>{/if}</span>
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                                                                                                <input type="radio" name="topic_t[3]" value="1" {if condition='isset($log.3) && $log.3.topic_v eq 1'}checked{/if} title="<em>[Original text]</em> <em class='span'> We encountered no difficulties in dealing with management in performing and completing our audit.</em>" ><br/>
                                                                                                    <input type="radio" name="topic_t[3]" value="2" {if condition='isset($log.3) && $log.3.topic_v eq 2'}checked{/if} title="[Delete Text]"><br/>
                                                                                                    <input type="radio" name="topic_t[3]" value="3" {if condition='isset($log.3) && $log.3.topic_v eq 3'}checked{/if} title="<em class='span'>Data to support the Company's gift card breakage rate was not available until several months after the completion of primary audit fieldwork. This delayed the completion of our audit.</em>" ><br/>
                                                                                                        <input type="radio" name="topic_t[3]" value="4" {if condition='isset($log.3) && $log.3.topic_v eq 4'}checked{/if} title="<em class='span'>The Company has sensitive accounting estimates that increased the timing of our audit.</em>"><br/>
                                                                                                            <input type="radio" name="topic_t[3]" value="5" {if condition='isset($log.3) && $log.3.topic_v eq 5'}checked{/if} title="<em class='span'>Management materially misstated net sales.</em>" ><br/>
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                                                                                                                <em>Uncorrected Misstatements </em><br>
                                                                                                                <br>
                                                                                                                Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. <span class="parent mbg {if condition='isset($log.4)'}xbg{/if}">{if condition='isset($log.4) && $log.4.topic_v eq 2'}<s>{/if}We have been informed that management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate to the financial statements.{if condition='isset($log.4) && $log.4.topic_v eq 2'}</s>{/if}</span>
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                                                                                                                                <input type="radio" name="topic_t[4]" value="1" {if condition='isset($log.4) && $log.4.topic_v eq 1'}checked{/if} title="<em>[Original text]</em> <em class='span'> We have been informed that management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate to the financial statements.</em>" ><br/>
                                                                                                                                    <input type="radio" name="topic_t[4]" value="2" {if condition='isset($log.4) && $log.4.topic_v eq 2'}checked{/if} title="[Delete Text]"><br/>
                                                                                                                                    <input type="radio" name="topic_t[4]" value="3" {if condition='isset($log.4) && $log.4.topic_v eq 3'}checked{/if} title="<em class='span'>As a result of our audit procedure, we discovered a $600K overstatement in net sales related to the Baby Division. The overstatement is material to the financial statements and has not been corrected by management.</em>" ><br/>
                                                                                                                                        <input type="radio" name="topic_t[4]" value="4" {if condition='isset($log.4) && $log.4.topic_v eq 4'}checked{/if} title="<em class='span'>We have been informed that management does not intend to provide us with the requested Gift Card breakage rate support in a timely manner. The delay could result in material misstatements to the financial statements.</em>"><br/>
                                                                                                                                            <input type="radio" name="topic_t[4]" value="5" {if condition='isset($log.4) && $log.4.topic_v eq 5'}checked{/if} title="<em class='span'>We have been informed that management has corrected all such misstatements, including a $600,000 material overstatement of net sales.</em>" ><br/>
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                                                                                                                                                <em>Disagreements with Management </em><br>
                                                                                                                                                <br>
                                                                                                                                                For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. <span class="parent mbg {if condition='isset($log.5)'}xbg{/if}">{if condition='isset($log.5) && $log.5.topic_v eq 2'}<s>{/if}We are pleased to report that no such disagreements arose during the course of our audit.{if condition='isset($log.5) && $log.5.topic_v eq 2'}</s>{/if}</span>
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                                                                                                                                                                <input type="radio" name="topic_t[5]" value="1" {if condition='isset($log.5) && $log.5.topic_v eq 1'}checked{/if} title="<em>[Original text]</em> <em class='span'> We are pleased to report that no such disagreements arose during the course of our audit.</em>" ><br/>
                                                                                                                                                                    <input type="radio" name="topic_t[5]" value="2" {if condition='isset($log.5) && $log.5.topic_v eq 2'}checked{/if} title="[Delete Text]"><br/>
                                                                                                                                                                    <input type="radio" name="topic_t[5]" value="3" {if condition='isset($log.5) && $log.5.topic_v eq 3'}checked{/if} title="<em class='span'>A disagreement arose during the audit regarding the need to provide footnote disclosure related to accounting estimates. This disagreement was not resolved.</em>" ><br/>
                                                                                                                                                                        <input type="radio" name="topic_t[5]" value="4" {if condition='isset($log.5) && $log.5.topic_v eq 4'}checked{/if} title="<em class='span'>A disagreement arose during the audit regarding the recognition of Baby Division revenue in the amount of $600,000. After consulting with other accountants, management agreed to correct the misstatement.</em>"><br/>
                                                                                                                                                                            <input type="radio" name="topic_t[5]" value="5" {if condition='isset($log.5) && $log.5.topic_v eq 5'}checked{/if} title="<em class='span'>A disagreement arose during the audit regarding whether management would provide us with the data needed to audit estimated breakage. This disagreement was resolved and management provided us with the needed data.</em>" ><br/>
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                                                                                                                                                                                <em>Management Representations</em><br>
                                                                                                                                                                                <br>
                                                                                                                                                                                We have requested certain representations from management that are included in the management representation letter dated May 5, Year 5.<br>
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                                                                                                                                                                                <em>Management Consultations with Other Independent Accountants </em><br>
                                                                                                                                                                                <br>
                                                                                                                                                                                In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the Company's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. <span class="parent mbg {if condition='isset($log.6)'}xbg{/if}">{if condition='isset($log.6) && $log.6.topic_v eq 2'}<s>{/if}To our knowledge, there were no such consultations with other accountants.{if condition='isset($log.6) && $log.6.topic_v eq 2'}</s>{/if}</span>
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                                                                                                                                                                                                <input type="radio" name="topic_t[6]" value="1" {if condition='isset($log.6) && $log.6.topic_v eq 1'}checked{/if} title="<em>[Original text]</em> <em class='span'> To our knowledge, there were no such consultations with other accountants.</em>" ><br/>
                                                                                                                                                                                                    <input type="radio" name="topic_t[6]" value="2" {if condition='isset($log.6) && $log.6.topic_v eq 2'}checked{/if} title="[Delete Text]"><br/>
                                                                                                                                                                                                    <input type="radio" name="topic_t[6]" value="3" {if condition='isset($log.6) && $log.6.topic_v eq 3'}checked{/if} title="<em class='span'>Based on audit procedures performed, we discovered a material overstatement in sales in the Baby Division of Toys. Revenue was recorded before all sales terms were fulfilled. Management consulted Harrison & Jackson, LLP, regarding this revenue recognition issue and ultimately decided to correct the overstatement.</em>" ><br/>
                                                                                                                                                                                                        <input type="radio" name="topic_t[6]" value="4" {if condition='isset($log.6) && $log.6.topic_v eq 4'}checked{/if} title="<em class='span'>We were informed management consulted with Harrison & Jackson, LLP, regarding the estimation of the breakage rate in gift card sales.</em>"><br/>
                                                                                                                                                                                                        <input type="radio" name="topic_t[6]" value="5" {if condition='isset($log.6) && $log.6.topic_v eq 5'}checked{/if} title="<em class='span'>Management consulted with Harrison & Jackson, LLP, regarding the unqualified opinion issued on their 12/31/Year 4 financial statements. The opinion of Harrison & Jackson, LLP, was consistent with ours.</em>" ><br/>
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                                                                                                                                                                                                        <u>Other Significant Matters, Findings, or Issues</u><br>
                                                                                                                                                                                                        <br>
                                                                                                                                                                                                        In the normal course of our professional association with the Company, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the Company's auditors.<br>
                                                                                                                                                                                                        &nbsp;<br>
                                                                                                                                                                                                        Patrick &amp; Patrick, LLP<br>
                                                                                                                                                                                                        Shreveport, LA<br>
                                                                                                                                                                                                        May 5, 2015&nbsp;<br>
                                                                                                                                                                                                        &nbsp;
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                                                                                                                                                                                                        <div><strong>Pop-up 1: </strong><br>
                                                                                                                                                                                                        Correct Answer: <span style="color:#0000ff">As stated in our engagement letter dated October 16, Year 4, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities.</span><br>
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                                                                                                                                                                                                        The AICPA requires auditors to communicate conformance with generally accepted accounting principles. Also, auditors must inform that their communication does not relieve management of their responsibilities.<br>
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                                                                                                                                                                                                        <strong>Pop-up 2: </strong><br>
                                                                                                                                                                                                        Correct Answer: <span style="color:#0000ff">Management's estimate of the value of inventory, which is based on historical experience, including turnover and purchase forecasts. Management's estimate of merchandise returns and gift card breakage, which is based on historical experience. Management's estimate of the useful lives of depreciable capital assets, which is based on the length of time it is believed that those assets will provide some economic benefit in the future. </span><br>
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                                                                                                                                                                                                        Reference Note 1 from the exhibits. In this section, all significant management estimates are listed. This includes valuation of inventories, revenue recognition, and long-lived asset impairment.<br>
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                                                                                                                                                                                                        <strong>Pop-up 3:</strong><br>
                                                                                                                                                                                                        Correct Answer: <span style="color:#0000ff">Data to support the Company's gift card breakage rate was not available until several months after the completion of primary audit fieldwork. This delayed the completion of our audit.&nbsp; </span><br>
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                                                                                                                                                                                                        Based on the e-mail correspondence between Aamani Inc.'s accounting manager and the audit manager, audit support was significantly delayed. Significant difficulties encountered in performing the audit must be detailed in the communication of significant audit findings to those charged with governance.<br>
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                                                                                                                                                                                                        <strong>Pop-up 4:</strong><br>
                                                                                                                                                                                                        Correct Answer: <span style="color:#0000ff">We have been informed that management has corrected all such misstatements, including a $600,000 material overstatement of net sales.</span><br>
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                                                                                                                                                                                                        The sales summary shows that a material overstatement of net sales has been corrected by management. If those charged with governance do not manage the entity, the communication of significant audit findings should include a description of any material, corrected misstatements that were brought to management's attention as a result of the audit.<br>
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                                                                                                                                                                                                        <strong>Pop-up 5:</strong><br>
                                                                                                                                                                                                        Correct Answer: <span style="color:#0000ff">A disagreement arose during the audit regarding the recognition of Baby Division revenue in the amount of $600,000. After consulting with other accountants, management agreed to correct the misstatement.</span><br>
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                                                                                                                                                                                                        Disagreements with management, such as disagreements over the correction of material misstatements, should be disclosed in the communication of significant audit findings, even if resolved.<br>
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                                                                                                                                                                                                        <strong>Pop-up 6:</strong><br>
                                                                                                                                                                                                        Correct Answer: <span style="color:#0000ff">Based on audit procedures performed, we discovered a material overstatement in sales in the Baby Division of Toys. Revenue was recorded before all sales terms were fulfilled. Management consulted Harrison &amp; Jackson, LLP, regarding this revenue recognition issue and ultimately decided to correct the overstatement. </span><br>
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                                                                                                                                                                                                        Reference the monthly meeting exhibit for communication between the auditor and management, including reference to the use of other auditors (Harrison &amp; Jackson, LLP). The communication of significant audit findings should include management's consultation with other accountants if those charged with governance do not manage the entity.
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